Tipsters to face prison for insider-trading

FSA gets tough on leaks after broker scams

Bloomberg

The Financial Services Agency is seeking stiffer penalties for people who leak information used for insider-trading, including prison terms, according to a document obtained by Bloomberg.

Individuals who provide tips for insider-traders to help them gain profits would face up to five years in prison and ¥5 million in fines, the FSA document shows. Institutions would be subject to fines of as much as ¥500 million.

The government is clamping down on insider-trading after regulators last year found that employees of brokerages, including Nomura Holdings Inc., gave tips on share offerings they managed. Under existing rules, only those who trade on nonpublic information can be imprisoned or fined.

“We welcome the tightening of regulations as a market participant,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “The new rule will act as a deterrent against insider-trading, as brokerages are improving internal controls.”

The proposal for imprisonment is more severe than recommendations made by an FSA advisory committee in December. The panel had urged that the names of brokerage employees who leak confidential information be disclosed to the public in egregious cases.

“We are preparing to submit a regulatory reform bill on insider-trading in this ordinary Diet session, in cooperation with parties in the government,” said Hiroshi Okada, an FSA spokesman, while declining comment on the proposals.

The agency’s proposed law change would bring Japan into line with the U.S., where former Goldman Sachs Group Inc. Director Rajat Gupta was convicted in June of passing insider tips to Galleon Group LLC founder Raj Rajaratnam in a conspiracy that ran from 2007 to January 2009. Gupta, sentenced to two years in prison, is free pending his appeal.

Since Japan’s insider-trading scandal broke a year ago, politicians have urged that the government be given greater authority to fine those who leak information in order to restore confidence in the nation’s financial markets.

Staff at Nomura, Japan’s biggest brokerage, gave tips on four equity offerings it managed in 2010 and 2011, regulators found last year. While the FSA didn’t fine the investment bank, it ordered the firm to improve securities operations and its top two executives resigned.

The Japan Securities Dealers Association in October fined Nomura ¥300 million, the biggest penalty by the self-regulatory group against any firm in 12 years.

SMBC Nikko Securities Inc. was docked some ¥200 million by the association in June after being found to have solicited clients by giving them confidential information on a public offering.